PLEASE SEE INSTRUCTIONS ATTACHED! Analyze your classmate’s thread, identifying at least 1 strength and 1 weakness in his or her reasoning. RESPONSE TO ANALYZE BELOW: Natural Gas Supply Recent political turmoil in the Ukraine threatens the supply of natural gas from that region to Western Europe, thus affecting the worldwide price of energy. Stricter Western sanctions could worsen the situation. As a supply chain manager, you understand the importance of fuel as a cost of doing business. Explain your short and long-term planning decisions in response to this situation.
The modern economic environment is experiencing unprecedented integration yet seen in human history. Political upheaval in a country that is a key supplier of a natural good significantly influences the costs of that commodity at a global level; impacts are felt at every level. Therefore, it is vital for supply chain managers to understand their raw resource suppliers and to develop response plans to mitigate these disruptions. The scenario provides the reviewers with the type of product as natural gas.
Natural gas is a functional product as is defined by Young (2017) to include products that satisfy basic needs, have a stable, predictable demand and possess long life cycles. Additionally, natural gas typically runs a stable supply process with a mature and well-established supply base. This disruption in the supply chain has created a shift for the Supply Chain Manager to move from efficient supply chain to a risk-hedging supply chain structure. Young (2017) defines risk-hedging chains as firms that utilize pooling and sharing resources to mitigate supply disruptions.
Risk-hedging strategies to deal with supply uncertainties are option contracts and advance purchase discount contracts which will be covered in more detail (Liu, Chen, Li, & Zhai, 2014). Supply chain disruptions can cause havoc in every downstream activity. From production delays to exponential cost increases to the customer, all are influenced.
Managers may deal with these uncertainties through what is called strategic sourcing, which is the development and management of supplier relationships to acquire goods and service in a way that aids in achieving the immediate needs of the business (Young, 2017).
A method within this strategy is forward buying or buying a year’s worth of supply. In addition, the risk hedging strategy creates an option to provide practical insights to the manufacturer for production quantity and the associated demand signal from the customer.
To deal with these supplier disruptions, a short-term option for managers to protect their supply chain increases inventory, add capacity at multiple locations, or increase available suppliers (Chopra & Sodhi, 2014). These will be the initial steps to execute mitigation efforts before long-term solutions may be pursued.
Expanding on the alternative of risk mitigation practices, companies may look to pre-position inventory, backup suppliers, and protect suppliers (Kamalahmadi & Parast, 2017). These approaches may be the long-term solution, as many of them require contractual agreements that take time to implement. Ultimately, as long as managers look to add redundancy and explore contingency plans that overestimate the likelihood of disruption, they will be far better off if one did actually occur.
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